Estate Tax Motivates Large Estate Owners To Give

The estate tax, which is a tax on the transfer of the estate of a deceased person when the estate’s worth exceeds $5.45 million, touches some families in the United States.

According to Time Magazine, since 2012, 99.8 percent of Americans aren’t affected by the federal estate tax.

Missy Vaselaney, estate planning partner at Taft Stettinius and Hollister LLP in Cleveland, and Joan Gross, a partner in trusts and estates at Hahn Loeser in Cleveland, said eliminating the tax on a federal level would affect those wealthy estates and in turn affect planned giving.

“Most of those (wealthy estates) are over $11 million per couple,” Vaselaney said. “If you have a couple that has almost $11 million (in their estate), they don’t get any deductions from charitable giving. For those families, (the estate tax) is a good thing. A lot of them give to family foundations that they work with. But for everyday people, they don’t benefit from doing charitable donations through their estate.”

Gross noted it’s not uncommon for estate planners and estate attorneys to direct clients to spend most of their time in a different state, so if they live in a state that does have an estate tax, they can avoid it by spending more time there.

“These states end up losing out (on the estate-tax revenue),” she said. “It’s my job to tell estate owners how to save money on their estates. First of all, there is an estate tax benefit to planned giving. But people don’t generally do planned giving to get that tax benefit. They do it because they are philanthropic.”

Vaselaney said most people that have estates think they are lined up to receive deductions when they donate to charities, but sometimes that isn’t the case as it could be entailed wrong in the will.

“At that point, the estate will be losing money from those taxes,” she said. “(Estate owners) should give through a small IRA and name the charity on that. An IRA is the best because then they can get those discounted dollars.”

Gross noted that ultimately it’s not so much an estate planner’s job to ensure someone is considering charitable bequests, but more so to ensure their wishes are honored after they pass – no matter what the wishes are.

“The estate plans that we prepare for our clients, the goal allows us to pass their estates down to the people they wish and in the manner they wish,” she said. “And this should be done in the most tax-efficient way. Estate taxes are always in the front of our mind (as estate attorneys). We don’t know what the future is going to be, so clients should be flexible and keep an eye on their estates.”

Vaselaney said if the estate tax went away, she believes charitable giving would be impacted. As there is a cap on how much an estate can be worth before it is taxed, wealthier families tend to give to charities to avoid the tax on their estate because taxes could lower the amount left to beneficiaries.

“There has always been an innate connection between estate taxes and wealthier peoples’ giving,” she said. “Back in the day, we didn’t have endowed libraries and buildings because there wasn’t an estate tax. Now that they have to pay on their estates, they are more likely to give.”

She said if families find that an estate owner is charitable, those donations should be insured so those donations can be replaced later within the estate when it’s paid to the beneficiaries.

Vaselaney said as with anything concerning a family, there needs to be a discussion before any commitment.

“If you are charitably inclined and your family doesn’t know, talk with them,” she said. “Don’t do this (without discussion) as they could sue the estate later on.”